Budget 2018: Tax exemption to medical facilities given by employer has just been taken away

Come 1 April 2018, whatever medical facilities provided by an employer to employee and family would be fully taxable because standard deduction of Rs 40,000 is supposed to take care of transport expenses and medical expenses hitherto reimbursed by the employer. This is the cruelest blow administered by Finance Minister Arun Jaitley in his 1 February 2018 Budget speech, the fine print of which as usual is to be gleaned from the Finance Bill. Many benevolent employers ran a liberal medical reimbursement regime either themselves or through insurance policies, mainly group insurance with a substantial cover. A coronary bypass surgery can cost anything between Rs 3 to 5 lakh in a modest hospital depending upon how many blocks were there in the vein. Now if one is fortunate to get the reimbursement from his employer, simultaneously he will have to grin and bear as the employer  adds it to the hapless employee’s salary income and deducts tax at source, too! In other words, medical reimbursement is going to be treated at par with medical allowance. Non-hospitalisation bills reimbursed by the employer got tax indulgence up to Rs 15,000 along with unapproved hospital bills. But these fine distinctions have been cast out of the window. All medical expenses reimbursed or paid by the employer on behalf of the employee is taxable. Period. [caption id=“attachment_4331983” align=“alignleft” width=“380”]  Representative image. Reuters[/caption] It would be advisedly better for employees to prevail upon their employers to take a generous health insurance policy instead of making a reimbursement himself because in the above example if the insurance company had paid Rs 5 lakh to the hospital directly or as reimbursement, only the premium would be taxable in the hands of the concerned employee. Health insurance companies should be happy with this latest development. Jaitley expects Rs 40,000 from employee’s own salary to take care of his and his family’s medical bills as well as the transportation expenses for going to work. And this he is kindly willing to let go untaxed. Touché! This is the height of meanness to the salaried class which has been fobbed off with practically nothing by Budget 2018. That executives enjoying company car come better off would be evident from the fact that they still continue to pay tax on a laughably small sum for this munificence from the employer. The implications of the withdrawal of the medical exemption is going to dawn more cruelly on employers running a hospital or paying for beds in hospitals. As it is the cost of treatment in such hospitals is tax-free. But no longer. If a Tata employee is given free treatment in Tata Memorial hospital, the tax man would come snooping and insist on knowing how much the hospital would have charged from a non-employee of the Tata group. That amount would be added to the taxable income of the employee. And if an employer pays for a bed in a reputed hospital, again the taxman would come calling when the employer’s staff gets themselves treated in such hospitals free of cost thanks to a covenant to this effect between the donor and the done.  Jaitley has indeed thrown the baby with the bathwater. True, there have been instances of employees misusing the unlimited medical reimbursement facility. A number of public sector companies showed such munificence resulting in idle employees making a beeline for the cash counter almost everyday often with fake bills. But grain has to be sifted from the chaff. It is the job of any administration to check frauds and not penalise the honest while penalising the dishonest. Click here for full coverage of Budget 2018   (The writer tweets @smurlidharan)